Gray v. American Exp. Co.

• Decision Date: 31 August 1984
• Docket Number: No. 83-1475,83-1475
• Citation: 240 U.S. App. D.C. 10,743 F.2d 10
• Parties: Oscar S. GRAY, Appellant v. AMERICAN EXPRESS COMPANY.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 10

743 F.2d 10

240 U.S.App.D.C. 10

Oscar S. GRAY, Appellant v. AMERICAN EXPRESS COMPANY.

No. 83-1475.

United States Court of Appeals District of Columbia Circuit.

Argued Jan. 12, 1984.

Decided Aug. 31, 1984.

Appeal from the United States District Court for the District of Columbia (Civil Action No. 82-01790).

Hubert H. Margolies, Washington, D.C., for appellant.

Christopher R. Lipsett, Washington, D.C., with whom John W. Zucker, Washington, D.C., was on brief, for appellee.

Before WILKEY, MIKVA and BORK, Circuit Judges.

Opinion for the Court filed by Circuit Judge MIKVA.

MIKVA, Circuit Judge.

We are called upon to determine what rights, if any, appellant Oscar Gray has against American Express arising from the circumstances under which it cancelled his American Express credit card. The District Court granted summary judgment to American Express; we vacate that judgment and remand for further proceedings.

I. BACKGROUND

Gray had been a cardholder since 1964. In 1981, following some complicated billings arising out of deferred travel charges incurred by Gray, disputes arose about the amount due American Express. After considerable correspondence, the pertinence and timeliness of which we will detail below, American Express decided to cancel Gray's card. No notification of this cancellation was communicated to Gray until the night of April 8, 1982, when he offered his American Express card to pay for a wedding anniversary dinner he and his wife already had consumed in a Washington restaurant. The restaurant informed Gray that American Express had refused to accept the charges for the meal and had instructed the restaurant to confiscate and destroy his card. Gray spoke to the American Express employee on the telephone at the restaurant who informed him, "Your account is cancelled as of now."

The cancellation prompted Gray to file a lengthy complaint in District Court, stating claims under both diversity and federal question jurisdiction. See 28 U.S.C. Secs. 1331, 1332; see also 15 U.S.C. Sec. 1640. He alleged that the actions of American Express violated the contract between them, known as the "Cardmember Agreement," as well as the Fair Credit Billing Act (the "Act"), 15 U.S.C. Secs. 1666-1666j, Pub.L. 93-495, Tit. III, 88 Stat. 1511 (1974). ^* The District Court granted summary judgment for American Express and dismissed the complaint.

The surge in the use of credit cards, the "plastic money" of our society, has been so quick that the law has had difficulty keeping pace. It was not until 1974 that Congress passed the Act, first making a serious effort to regulate the relationship between a credit cardholder and the issuing company. We hold that the District Court was too swift to conclude that the Act offers no protection to Gray and further hold that longstanding principles of contract law afford Gray substantial rights. We thus vacate the District Court's judgment and remand.

II. DISCUSSION

A. The Statutory Claim

Fair Credit Billing Act seeks to prescribe an orderly procedure for identifying and resolving disputes between a cardholder and a card issuer as to the amount due at any given time. The Supreme Court, in American Express Co. v. Koerner, 452 U.S. 233, 235-37, 101 S.Ct. 2281, 2283-84, 68 L.Ed.2d 803 (1981), succintly described the mechanics of the Act as follows:

If the [cardholder] believes that the statement contains a billing error [as defined in 15 U.S.C. Sec. 1666(b) ], he then may send the creditor a written notice setting forth that belief, indicating the amount of the error and the reasons supporting his belief that it is an error. If the creditor receives this notice within 60 days of transmitting the statement of account, [Sec. 1666(a) ] imposes two separate obligations upon the creditor. Within 30 days, it must send a written acknowledgment that it has received the notice. And, within 90 days or two complete billing cycles, whichever is shorter, the creditor must investigate the matter and either make appropriate corrections in the [cardholder's] account or send a written explanation of its belief that the original statement sent to the [cardholder] was correct. The creditor must send its explanation before making any attempt to collect the disputed amount.

A creditor that fails to comply with [Sec. 1666(a) ] forfeits its right to collect the first $50 of the disputed amount including finance charges. [15 U.S.C. Sec. 1666(e) ]. In addition, [Sec. 1666(d) ] provides that, pursuant to regulations of the Federal Reserve Board, a creditor operating an "open end consumer credit plan" may not restrict or close an account due to a [cardholder's] failure to pay a disputed amount until the creditor has sent the written explanation required by [Sec. 1666(a) ] (footnote omitted).

Other obligations also attach. First, if "appropriate corrections" are made, the card issuer also must credit any finance charge on accounts erroneously billed. 15 U.S.C. Sec. 1666(a)(B)(i). Second, the card issuer must notify the cardholder on subsequent statements of account that he need not pay the amount in dispute until the card issuer has complied with Sec. 1666. 15 U.S.C. Sec. 1666(c)(2). Third, the card issuer may not report, or threaten to report, adversely on the cardholder's credit before the card issuer has discharged its obligations under Sec. 1666, 15 U.S.C. Sec. 1666a(a), and, if the cardholder continues to dispute the bill in timely fashion, the card issuer may report the delinquency only if it also reports that the amount is in dispute and tells the cardholder to whom it has released this information. 15 U.S.C. Sec. 1666a(b). The card issuer is further obliged to report any eventual resolution of the delinquency to the same third parties with whom it earlier had communicated. 15 U.S.C. Sec. 1666a(c). Finally, a card issuer that fails to comply with any requirements of the Act is liable to the cardholder for actual damages, twice the amount of any finance charge, and costs of the action and attorney's fees. 15 U.S.C. Sec. 1640(a).

American Express is, of course, a creditor for purposes of the Act. Koerner, supra, 452 U.S. at 241 n. 8, 101 S.Ct. at 2286 n. 8.

1. The Billing Error

The billing dispute in issue arose after Gray used his credit card to purchase airline tickets costing $9312. American Express agreed that Gray could pay for the tickets in 12 equal installments over 12 months. In January and February of 1981, Gray made substantial prepayments of $3500 and $1156 respectively. He so advised American Express by letter of February 8, 1981. There is no dispute about these payments, nor about Gray's handling of them. At this point the numbers become confusing because American Express, apparently in error, converted the deferred payment plan to a current charge on the March bill. American Express thereafter began to show Gray as delinquent, due at least in part to the dispute as to how and why the deferred billing had been converted to a current charge.

The District Court held that Gray failed to trigger the protection of the Act because he neglected to notify American Express in writing within 60 days after he first received an erroneous billing. Gray insists that his first letter to American Express on April 22, 1981, well within the 60 day period set forth in the statute, identified the dispute as it first appeared in the March, 1981 billing. According to Gray's complaint, the dispute continued to simmer for over a year because American Express never fulfilled its investigative and other obligations under the Act.

The District Court made no mention of the April 22, 1981 letter, deeming instead a September, 1981 letter as the first notification from Gray as to the existence of a dispute. We conclude that the District Court erred in overlooking the April letter.

Gray's April 22, 1981 letter complained specifically about the March bill and the miscrediting of the prepayments. Whatever the import and impact of other correspondence and actions of the parties, we hold that, through this earlier letter, Gray triggered the procedural protections of the Act. The letter enabled the card issuer to identify the name and account number, indicated that the cardholder believed that an error existed in a particular amount and set forth the cardholder's reasons why he believed an error had been made. 15 U.S.C. Sec. 1666(a); see Lincoln First Bank, N.A. v. Carlson, 103 Misc.2d 467, 426 N.Y.S.2d 433 (1980) (returned credit slip, with nothing more, could suffice as notice under the Act). The later correspondence and activities may be treated as evidentiary in nature--sufficient perhaps to show that American Express fulfilled all of its obligations under the Act, but not pertinent to the question of whether the Act was triggered in the first place. See Byers v. Burleson, 713 F.2d 856, 859 (D.C.Cir.1983) (appellate court reviewing summary judgment determines whether there is genuine issue of material fact and, if not, whether the law was correctly applied).

2. Reporting and Collection Efforts

Gray alleged in count III that, notwithstanding his having given notice of dispute under Sec. 1666 through his letters, American Express nevertheless turned over his account for collection to a bill collection agency. The District Judge dismissed this count (misdesignating it as count IV) by concluding that it failed to state a claim for relief. The District Court erred. See 15 U.S.C. Secs. 1640(a), 1666a. We think that count III states an independent cause of action under Sec. 1666a because Gray's April 22, 1981 correspondence brought the dispute within the Act's coverage. The question of American Express' compliance with the reporting and collection requirements of the Act also warrants consideration on remand.

3. The Act and the Cardmember Agreement

As we have indicated above, the District Court summarily resolved Gray's statutory claims by wrongly concluding that the Act did not apply. On appeal,...